Understanding Charitable Giving and the New Tax Code

Did you know that the majority of Americans give to charity in the months of November and December? In fact, 31% of charitable contributions are made in the month of December. This time of year, so many people are thinking about how they can use their wealth in a way that lines up with their values. Personally, I like to encourage this kind of values-based budgeting and spending for a wide range of reasons. However, with the recent change in the tax code, it’s notably more difficult to use charitable giving as a tax deduction. Let’s talk about why charitable giving is a wise practice, and how you can still use donating as a method of tax planning.

Why Charitable Giving?

It’s helpful to give ourselves a small “reality check” every once in a while to remember that, in spite of any financial ups and downs we’ve experienced in the last year, we all experience financial blessings. And giving those blessings to others in a way that’s meaningful to you can be a game-changer for how you view your finances.

Charitable giving is also a good way to find emotional fulfilment with your spending. Too often we spend money on something that we immediately regret. We look for the short-term fix of feeling good about buying something new, and when that method of spending doesn’t make us feel good (or the “high” from spending is short-lived), we end up spending again on other things that are equally unfulfilling. Charitable giving, on the other hand, is a way to spend our wealth that’s emotionally fulfilling. Giving to others and being helpful has a positive impact on our mental and emotional state, which can encourage other positive spending habits.

Taxes and Charitable Giving

The new tax code has increased the standard deduction. The new standard deductions are:

$12,000 for individuals

$18,000 for heads of household

$24,000 for married couples filing jointly and surviving spouses

This is a pretty notable increase (almost double) from what it was in 2017. This means that a lot of people will take the standard deduction instead of itemizing their taxes next filing season. For the most part, not itemizing given the higher standard deduction makes sense. It will simplify tax filing for you and your family while helping to ensure you get the deduction amount that’s best for you.

However, with a number of people no longer considering itemizing their taxes next season, it means that deducting charitable donations isn’t a practice that’s going to be as popular. This could result in less charitable giving across the board this year (and in years to come). As much as we don’t want to admit that a reason for charitable giving could be the fact that we were getting a tax deduction, the fact remains: having the tax deduction option all but removed makes giving our money away somewhat less appealing. This isn’t necessarily the right way to approach charitable giving, but it’s worth keeping in mind.

So, How Do You Give to Charity in a Tax-Efficient Way?

When you plan to donate to charity, you may have altruistic motivations – which is one of the main reasons I support charitable giving as a financial planner. However, there are a few ways to give that still have a positive impact on your taxes.

#1: Charitable Lumping

Many people have turned to charitable lumping as a way to ensure that their donations are still tax-efficient in light of the new tax code. This means that, instead of giving annually, you put the funds that you would give annually in an earmarked account. Then, when you’ve accumulated several years of donations, you give in bulk – and only itemize your taxes for that specific year. This can help to accomplish both the charitable giving you’re passionate about, and to still receive some form of tax benefit as a result of your giving.

#2: Giving Appreciated Stock

If you choose to gift long-term appreciated stock, you may be able to avoid paying capital gains tax on your stocks. This can help you to support a charity you’re passionate about in a big way, while also avoiding a large tax bill.

#3: Giving Your RMDs

Are you trying to mitigate the impact of taxes on your RMDs? You can donate a portion of your RMD (Required Minimum Distribution) to charity (up to $100,000 tax-free).

Have Questions?

Feel free to schedule a call with me by clicking here! I’d love to help you walk through how you can give to charity in a tax-efficient way, and develop a strategy for how charitable donations can be incorporated in your financial plan.

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I’m Russ Thornton, founder of Wealthcare For Women, and I've been a financial advisor for over 23 years. I am committed to helping women gain the comfort & clarity necessary around money to live a better life.

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